What comes to mind when you think of Compaq? Personal computers, perhaps?

Even though it started off as a portable PC maker, Compaq built a reputation for itself as a solid provider of grey-taupe computers that were reasonably priced for the consumer and embraced by business as competent machines.

What Compaq does isn't glamorous. In fact, the company has the personality of a bank. So when the swanky Compaq iPaq Pocket PC popped on the market last spring, jaws dropped.

The device is sexy. It's also drawing raves from journalists and the few consumers who've been able to get their hands on the hard-to-find handheld computer. Compaq admits it underestimated demand.

In August, the company announced Compaq-branded versions of the Blackberry wireless e-mail devices, made by Canadian company Research in Motion.

Compaq also offers MP3 players and jukeboxes, as well as a Microsoft Network-branded Internet access appliance sold through Radio Shack.

So it seems that Compaq is changing.

But is Compaq the PC company becoming Compaq the electronics company? A hip company like Sony?

"We will see whether that happens when we come to the fruition of our strategy with Internet-based personal products which we branded with the name iPaq," said Sean Burke, vice-president of Compaq's Presario product division, in Houston, Texas.

Burke says the jump into Internet-connected gadgets is not an experiment, but rather a new direction for Compaq to provide both business and consumer with a variety of ways to connect to what he calls destinations on the Internet.

"The Internet is not a destination itself," he said. "The destinations are communication with family and friends. They are connecting with information, music and multimedia which all are done through the Internet."

Part of that strategy involves setting up relationships with other companies. Compaq has significant experience with that. Burke believes it makes Compaq stand apart from consumer electronics companies. "It's one thing we had to do as computer company, but consumer electronic companies have not had to build those partnerships," he said, adding that it's a strength that Compaq will leverage as it moves forward into consumer appliances.

Partnerships haven't always been successful for Compaq. For example, in 1997, the company rolled out the PC Theatre, a cooperative venture with Thomson Electronics, maker of RCA electronics products.

The device was a multimedia Compaq computer integrated with a 36-inch RCA TV. The idea was that viewers could watch television or a video and simultaneously search the Internet or use an interactive encyclopedia CD-ROM to learn more about the subject they were watching. It was pulled after a year on the market because demand didn't meet expectations, said a Compaq spokesperson. "It was a technology that was ahead of its time and, in retrospect, was expensive," she said. The product was priced at about $5,000. The intent was correct, there just wasn't a business case.

Such partnerships, which often include bundling services with devices, have been a new source of revenue in recent years.

Burke said services accounted for $90 million of revenue in 1999. He expects them to hit $160 million by the end of 2000.

The move into non-PC devices is not an area that Compaq's traditional competitors are following. At least, not yet. Dell has no plans to develop Dell-branded Internet-connected gadgets, but it does sell other companies' devices. Meanwhile, IBM offers the Workpad, a Palm clone. Big Blue is also doing significant work in enabling its laptops to go wireless and its labs are exploring wearable techno-gear and further wireless technologies.

Portable products are not new to Compaq. If you look back at Compaq's history, it started as a mobile device company. In 1982, the company's first product was the Compaq Portable PC. Though "portable" was perhaps an optimistic word, as the computer weighed 28 lbs. In subsequent years, a focus on desktop and server computers, especially in the 1990s, led to the company becoming a market force.

Its move into Internet-enabled gadgets comes, in part, thanks to the enthusiasm of Compaq CEO Michael Capellas.

"Michael is a user of technology," said Burke, "and he is an advanced user. One area he enjoys is our audio products."

Capellas is a frequent user of Compaq's digital music jukebox and has a wireless computer network in his home.

"That is a help for us because he is clearly behind it," Burke added.
What's interesting is Capellas and his troops are employing a multiple-operating system strategy learned in desktops. The iPaq Pocket PC uses the latest Windows CE operating system. Compaq is also playing with Linux on the handheld platform. The company has developed the Open Handheld Program. It has ported Linux, a free operating system, to the iPaq handheld and has released the source code to encourage developers and researchers to cook up ideas for the little computer.

The Compaq Blackberry devices, technically competitors to the Pocket PC, use Research in Motion's proprietary operating system.

In Europe, Compaq has developed products that use BeOS, the operating system developed by Be Incorporated, a company founded in 1990 by former Apple executive Jean-Louis Gassée.

What's missing from the Compaq gadgets puzzle is PalmOS, the operating system onboard Palm Inc.'s line of devices. "We have looked at the Palm and I won't say we would never use Palm but with the success of the iPaq Pocket PC with Windows CE (operating system) there is no significant need to move that product to the Palm OS," said Burke. Regardless of what products Compaq decides to develop, there is one certainty. That they will connect consumers to information and content wherever they are.

And while it's a shift in strategy for Compaq, it's also an indication that consumers are ready to embrace for technology away from the desktop.

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